Bush would not be doing a d&!^ thing for the economy except continue run it into the ground, just like he did the prior eight years as the dollar slid to the depths. The job may be too big for BO, at least he is not causing the harm as Bush did. Nobody wants a debased currency and all the problems it entails. As things stand right now, the dollar is no better than the Euro. The only thing Bush did was appoint a competent Fed Chairman. I know a lot of you on this board rail against Benny, but he is doing the only thing he can. I am relieved Bush is gone.
Is america bankrupt as a country?
- Thread starter brokenmarkets
- Start date
Bush would not be doing a d&!^ thing for the economy except continue run it into the ground, just like he did the prior eight years as the dollar slid to the depths. The job may be too big for BO, at least he is not causing the harm as Bush did. Nobody wants a debased currency and all the problems it entails. As things stand right now, the dollar is no better than the Euro. The only thing Bush did was appoint a competent Fed Chairman. I know a lot of you on this board rail against Benny, but he is doing the only thing he can. I am relieved Bush is gone.
Nice try, but think of velocity as the wind. The speed the fire spreads at and where it goes depends on which way the wind blows and the speed of the wind.
If you can create a firebreak before the wind kicks up, you can easily get it under control. The Fed's exit plan would need to create that firebreak as the wind picks up.
Also, metaphors are nice, but it doesn't change the one thing I keep saying: there is no statistically significant relationship between money supply and inflation. Nothing is going to change that one simple fact.
Is the US the next Greece or Uruguay?
Greece Is More Like Argentina Than Uruguay: Economist
GREECE, URUGUAY, ARGENTINA, DEFAULT, REPROFILING, RESTRUCTURING, BAILOUT, IMF, EU, ECB
Posted By: Peter Guest | Web Producer, CNBC.com
CNBC.com
| 02 Jun 2011 | 01:59 AM ET
Past voluntary debt reprofilings in Latin America have worked to varying degrees, but "soft" restructuring is not going to solve Greece's debt problems, according to Stuart Culverhouse, chief economist of frontier markets specialist Exotix.
Parallels have been drawn between Greece's current dilemma and that of Uruguay, which underwent a voluntary debt exchange in May 2003 after its 2002 financial crisis left it with a public debt mountain and a cluster of debt maturities over 2003-2007.
The Uruguayan government extended the maturities on its debt without a reduction in coupons, restored debt sustainability and avoided default.
Greece, however, is not Uruguay, Culverhouse told CNBC.com.
"The comparison is a tricky one. I think people have seen the fact that there was a maturity extension operation several years ago in a country with ostensibly similar public debt issues, and said well, it worked then, it must be able to work now. It's not so clear cut," he said.
"We're talking a much larger operation if Greece was to go through this process, and possibly a much more fragmented investor base, a more diverse banking sector. I don't think the parallels are strictly there, which means to us that it's going to be a much harder thing to try and pull off."
Uruguay had less debt and lower deficits than Greece when it entered its crisis, and much of the rise in its debt/GDP ratio was due to exchange rate depreciation, Culverhouse noted. Its exchange rate flexibility post-crisis also allowed its government to respond more effectively by restoring investor confidence and improve the country's competitiveness. Without leaving the euro, Greece would not have this flexibility.
Uruguay also had a relatively small debt reduction, compared to the considerable cut that Greece will need. The Latin American country also benefited from a stronger global and regional economic outlook and from a market perception that its problems were externally, rather than internally driven. Investors today are struggling to buy the argument that Greece's problems were anyone else's fault but its own.
Argentina's attempt at a debt extension in June 2001 is perhaps a better example of how Greece's reprofiling might play out, Culverhouse said. That voluntary debt exchange was only a temporary success, staving off default for six months.
"I don't think it's going to work in the sense that it's going to restore sustainability and solvency. It may buy a little bit more time, but I don't think that alters the underlying debt dynamics. It doesn't solve the debt/GDP ratio."
Deferral is "the only decision that policymakers are willing to consider," Culverhouse said. "We think they need to go further."
"(default) may be the inevitable consequence of an operation that has a significant debt reduction. I think it will mean that they will end up defaulting⦠within the next year or so."
© 2011 CNBC.com
URL: http://www.cnbc.com/id/43234332/
Greece Is More Like Argentina Than Uruguay: Economist
GREECE, URUGUAY, ARGENTINA, DEFAULT, REPROFILING, RESTRUCTURING, BAILOUT, IMF, EU, ECB
Posted By: Peter Guest | Web Producer, CNBC.com
CNBC.com
| 02 Jun 2011 | 01:59 AM ET
Past voluntary debt reprofilings in Latin America have worked to varying degrees, but "soft" restructuring is not going to solve Greece's debt problems, according to Stuart Culverhouse, chief economist of frontier markets specialist Exotix.
Parallels have been drawn between Greece's current dilemma and that of Uruguay, which underwent a voluntary debt exchange in May 2003 after its 2002 financial crisis left it with a public debt mountain and a cluster of debt maturities over 2003-2007.
The Uruguayan government extended the maturities on its debt without a reduction in coupons, restored debt sustainability and avoided default.
Greece, however, is not Uruguay, Culverhouse told CNBC.com.
"The comparison is a tricky one. I think people have seen the fact that there was a maturity extension operation several years ago in a country with ostensibly similar public debt issues, and said well, it worked then, it must be able to work now. It's not so clear cut," he said.
"We're talking a much larger operation if Greece was to go through this process, and possibly a much more fragmented investor base, a more diverse banking sector. I don't think the parallels are strictly there, which means to us that it's going to be a much harder thing to try and pull off."
Uruguay had less debt and lower deficits than Greece when it entered its crisis, and much of the rise in its debt/GDP ratio was due to exchange rate depreciation, Culverhouse noted. Its exchange rate flexibility post-crisis also allowed its government to respond more effectively by restoring investor confidence and improve the country's competitiveness. Without leaving the euro, Greece would not have this flexibility.
Uruguay also had a relatively small debt reduction, compared to the considerable cut that Greece will need. The Latin American country also benefited from a stronger global and regional economic outlook and from a market perception that its problems were externally, rather than internally driven. Investors today are struggling to buy the argument that Greece's problems were anyone else's fault but its own.
Argentina's attempt at a debt extension in June 2001 is perhaps a better example of how Greece's reprofiling might play out, Culverhouse said. That voluntary debt exchange was only a temporary success, staving off default for six months.
"I don't think it's going to work in the sense that it's going to restore sustainability and solvency. It may buy a little bit more time, but I don't think that alters the underlying debt dynamics. It doesn't solve the debt/GDP ratio."
Deferral is "the only decision that policymakers are willing to consider," Culverhouse said. "We think they need to go further."
"(default) may be the inevitable consequence of an operation that has a significant debt reduction. I think it will mean that they will end up defaulting⦠within the next year or so."
© 2011 CNBC.com
URL: http://www.cnbc.com/id/43234332/
If one's outgo exceeds one's income
one's upkeep will be one's downfall...
People are shocked at the inevitable! I was telling an idiotic Fox News hating MSNBC addict that Socialism is in a worldwide meltdown but listen/think/learn?? NOOoooooo... not at all, he yelled at me that it's Capitalism that is melting down!! I thought he was going to throw furniture... anything but listen/think/learn, he's for "activism", right? Activism is not about listen/think/learn...
I told a miserable, hugely overweight, man-hating AmeriBitch that I considered Socialism and the resultant taxation to be sneaky theft of my money. I told her how I took one Leftist AmeriBitch through a legal process, got $ out of her and destroyed part of her illegal income just because I didn't like the woman, didn't like it that she changed deals on me after they were inked and was lying about everything to nearly everybody, so guess what the reaction was? Shock and disgust that I would do such a thing!! LOL
one's upkeep will be one's downfall...
People are shocked at the inevitable! I was telling an idiotic Fox News hating MSNBC addict that Socialism is in a worldwide meltdown but listen/think/learn?? NOOoooooo... not at all, he yelled at me that it's Capitalism that is melting down!! I thought he was going to throw furniture... anything but listen/think/learn, he's for "activism", right? Activism is not about listen/think/learn...
I told a miserable, hugely overweight, man-hating AmeriBitch that I considered Socialism and the resultant taxation to be sneaky theft of my money. I told her how I took one Leftist AmeriBitch through a legal process, got $ out of her and destroyed part of her illegal income just because I didn't like the woman, didn't like it that she changed deals on me after they were inked and was lying about everything to nearly everybody, so guess what the reaction was? Shock and disgust that I would do such a thing!! LOL
We owe a lot of money but will never be broke or bankrupt. The powers to be and our military will see that we scorch the earth before we go down.
Anyone that fucks with our dollar or tries to affect its status as the world's reserve currency will be taken out through swift and decisive attacks.
We will always loan money to impoverished nations so they too get to suckle off the USD teet. The world economy collapses without the dollar.
Anyone that fucks with our dollar or tries to affect its status as the world's reserve currency will be taken out through swift and decisive attacks.
We will always loan money to impoverished nations so they too get to suckle off the USD teet. The world economy collapses without the dollar.
are you playing semantics? every government with $US is unwilling to hold the crap paper. either they are reducing their purchases of treasuries or are buying up the US.
for Canadians property in florida is 70% of the peak.
"Anyone that fucks with our dollar or tries to affect its status as the world's reserve currency will be taken out through swift and decisive attacks."
America is a fading empire just as Europe has been since world war II. the US has been in Iraq and Afghanistan for years with no solution. with the dollar declining you are getting poorer by the day. America is neither quick nor decisive.
I like your handle. it describe America exactly.
Seems like the countries whose government sets their exchange rates and best protects their economic interests will survive the imminent melt down. India's Rupee had been a closed currency closely guarded by their RBI.
Many countries have started moving out of the Dollar as the basis for international trade settlements, including: Japan, Syria, Iran, Libya, Russia, Argentina, Brazil, Venezuela and 12 other Latin American countries as well as Cuba.
There are numerous hints that the dollar will not remain the world's reserve currency for long:
Iran is bartering oil for Thai rice, as a way to stay out of the dollar in its trades
Russia's Putin is suggesting that Russia and China ditch the dollar and use their own currencies in trade deals
Thailand's Deputy Prime Minister, Olarn Chaipravat, told Bloomberg News:
"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world."
The Wall Street Journal writes that China is being asked to play America's role of being at the center of the world financial system
Nouriel Roubini says that the Yuan will eventually take over from the dollar as reserve currency:
What could replace the dollar? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi.
China is a creditor country with large current account surpluses, a small budget deficit, much lower public debt as a share of G.D.P. than the United States, and solid growth. And it is already taking steps toward challenging the supremacy of the dollar. Beijing has called for a new international reserve currency in the form of the International Monetary Fundâs special drawing rights (a basket of dollars, euros, pounds and yen). China will soon want to see its own currency included in the basket, as well as the renminbi used as a means of payment in bilateral trade.
At the moment, though, the renminbi is far from ready to achieve reserve currency status. China would first have to ease restrictions on money entering and leaving the country, make its currency fully convertible for such transactions, continue its domestic financial reforms and make its bond markets more liquid. It would take a long time for the renminbi to become a reserve currency, but it could happen. China has already flexed its muscle by setting up currency swaps with several countries (including Argentina, Belarus and Indonesia) and by letting institutions in Hong Kong issue bonds denominated in renminbi, a first step toward creating a deep domestic and international market for its currency.
Roubini provides advice which the American economic policy-makers ignore at their peril:
This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles...
Now that the dollarâs position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital â rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar...
According to the Financial Times: Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazilâs central bank and aides to Luiz Inácio Lula da Silva, Brazilâs president...
George Soros said in June 2009 that Chinaâs global influence is set to grow faster than most people expect. Then the head of China's second-largest bank has said the United States government should start issuing bonds in yuan, rather than dollars, in the latest indication of the increasing importance of the Chinese currency.
Brazil, Russia, India and China are considering buying each otherâs bonds and swapping currencies to lessen dependence on the U.S. dollar....
The BRIC countries have combined reserves of $2.8 trillion and are among the biggest holders of U.S. Treasuries.
In August 2009, Pimco was warning it's clients to diversify out of dollars, as the dollar is losing it's global reserve currency.
China issued a non-Dollar denominated Renminbi bond sale on September 28th 2010 (6 Billion Renminbi worth).
It's not yet clear whether the Renminbi, gold, SDR, Bancor or something else will eventually take the throne of the new world's reserve currency. And many settlements are still, obviously, being made in dollars. But there is at least an argument that the dollar has already lost its status as world reserve currency, even if there is no ready replacement to jump into the breach.
In November, the Yuan actually started trading against the Ruble.
The Bank of India (a state-owned bank, India's 4th biggest) started trading Yuan for Rupees.
March 2 2011's biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People's Bank of China.
***
Reuters provides a simple translation and summary of the announcement: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily." To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.
International Business Times provides further insight:
This is all part of Chinaâs plan for the internationalization of its currency, which may, in the decades to come, threaten the global âmarket shareâ of other currencies like the US dollar.
Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.
Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.
Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency.
China is already the leading trade partner with Australia and Japan. Itâs also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for Chinaâs trade partners, especially as the government continues to relax restrictions.
And confirming that the PBoC announcement is far more serious than the amount of airtime allotted to it by the mainstream [U.S.] media, is an article in Spiegel "China Attacked the Dollar" :
The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for the U.S..
The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan. Now that the amount of yuan has been opened and extended, it should handle much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary.
Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.
The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar.
Many countries have started moving out of the Dollar as the basis for international trade settlements, including: Japan, Syria, Iran, Libya, Russia, Argentina, Brazil, Venezuela and 12 other Latin American countries as well as Cuba.
There are numerous hints that the dollar will not remain the world's reserve currency for long:
Iran is bartering oil for Thai rice, as a way to stay out of the dollar in its trades
Russia's Putin is suggesting that Russia and China ditch the dollar and use their own currencies in trade deals
Thailand's Deputy Prime Minister, Olarn Chaipravat, told Bloomberg News:
"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world."
The Wall Street Journal writes that China is being asked to play America's role of being at the center of the world financial system
Nouriel Roubini says that the Yuan will eventually take over from the dollar as reserve currency:
What could replace the dollar? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi.
China is a creditor country with large current account surpluses, a small budget deficit, much lower public debt as a share of G.D.P. than the United States, and solid growth. And it is already taking steps toward challenging the supremacy of the dollar. Beijing has called for a new international reserve currency in the form of the International Monetary Fundâs special drawing rights (a basket of dollars, euros, pounds and yen). China will soon want to see its own currency included in the basket, as well as the renminbi used as a means of payment in bilateral trade.
At the moment, though, the renminbi is far from ready to achieve reserve currency status. China would first have to ease restrictions on money entering and leaving the country, make its currency fully convertible for such transactions, continue its domestic financial reforms and make its bond markets more liquid. It would take a long time for the renminbi to become a reserve currency, but it could happen. China has already flexed its muscle by setting up currency swaps with several countries (including Argentina, Belarus and Indonesia) and by letting institutions in Hong Kong issue bonds denominated in renminbi, a first step toward creating a deep domestic and international market for its currency.
Roubini provides advice which the American economic policy-makers ignore at their peril:
This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles...
Now that the dollarâs position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital â rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar...
According to the Financial Times: Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazilâs central bank and aides to Luiz Inácio Lula da Silva, Brazilâs president...
George Soros said in June 2009 that Chinaâs global influence is set to grow faster than most people expect. Then the head of China's second-largest bank has said the United States government should start issuing bonds in yuan, rather than dollars, in the latest indication of the increasing importance of the Chinese currency.
Brazil, Russia, India and China are considering buying each otherâs bonds and swapping currencies to lessen dependence on the U.S. dollar....
The BRIC countries have combined reserves of $2.8 trillion and are among the biggest holders of U.S. Treasuries.
In August 2009, Pimco was warning it's clients to diversify out of dollars, as the dollar is losing it's global reserve currency.
China issued a non-Dollar denominated Renminbi bond sale on September 28th 2010 (6 Billion Renminbi worth).
It's not yet clear whether the Renminbi, gold, SDR, Bancor or something else will eventually take the throne of the new world's reserve currency. And many settlements are still, obviously, being made in dollars. But there is at least an argument that the dollar has already lost its status as world reserve currency, even if there is no ready replacement to jump into the breach.
In November, the Yuan actually started trading against the Ruble.
The Bank of India (a state-owned bank, India's 4th biggest) started trading Yuan for Rupees.
March 2 2011's biggest piece of news received a mere two paragraph blurb on Reuters, and was thoroughly ignored by the broader media. An announcement appeared shortly after midnight on the website of the People's Bank of China.
***
Reuters provides a simple translation and summary of the announcement: "China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily." To all those who claim that China is perfectly happy with the status quo, in which it is willing to peg the Renmibni to the Dollar in perpetuity, this may come as a rather unpleasant surprise, as it indicates that suddenly China is far more vocal about its intention to convert its currency to reserve status, and in the process make the dollar even more insignificant.
International Business Times provides further insight:
This is all part of Chinaâs plan for the internationalization of its currency, which may, in the decades to come, threaten the global âmarket shareâ of other currencies like the US dollar.
Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.
Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.
Aside from the efforts of the Chinese government, fundamentals also point to the increasing international popularity of the Chinese currency.
China is already the leading trade partner with Australia and Japan. Itâs also the leading or a large trade partner with many of its smaller neighbors. The purpose of having foreign currencies is to conduct foreign trade and investment, so the yuan is expected to become a more attractive currency for Chinaâs trade partners, especially as the government continues to relax restrictions.
And confirming that the PBoC announcement is far more serious than the amount of airtime allotted to it by the mainstream [U.S.] media, is an article in Spiegel "China Attacked the Dollar" :
The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for the U.S..
The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan. Now that the amount of yuan has been opened and extended, it should handle much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary.
Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.
The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar.
pocketchange
""Anyone that fucks with our dollar or tries to affect its status as the world's reserve currency will be taken out through swift and decisive attacks."
"Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.
The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar."
you are a real flip flopper.
you also failed to attribute the post to people who wrote about it.
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China Embarks on âFive Year Planâ To Dump The Dollar
March 2nd, 2011 ⢠Related ⢠Filed Under
by Aaron Krowne
There has been a lot of well-meaning talk about the âthreatâ of China dumping the dollar, with precious little discussion of potential mechanisms.
A ZeroHedge piece that just came out got me thinking that China is actually well underway on its path to explicitly driving the stake into the heart of the dollar once and for all (incidentially, this makes a nice follow-on to my recent article about Chinaâs ability to âdumpâ the dollar based on hard asset holdings). It is clear now they really are going down a well-defined path here, that shows it is only a matter of time until we arrive at wholesale regime change for the dollar-dominated international trade system.
The main insight in the article is that China is taking new steps to provide for settlement of trade in Yuan instead of dollars:
The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes Americaâs claim to represent the key currency â with serious consequences for the U.S..
â¦
Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.
Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.
Over the past two years, they had begun doing this at first with select trading partners. Then, in the last few months they began establishing the general ability to do this via the normal banking system (as in, allowing for holding Yuan in banks outside of China).
Those who are saying that China is âstuckâ with the dollar are now apparently more sure of this than China is. If China is âstuckâ, it is certainly not acting like it. And heaven forbid they create exactly the outcome they want to bring about by resolutely taking those first few steps of a âjourney of 1000 milesâ, nay-sayers be damned.
When you think about it, it makes little sense that everyone (especially the Chinese) should by default hold dollars, when China and not the US is the âcompany storeâ the world goes to for most of its goods. Basically, the US has (till now) had the geopolitical influence to demand its own worthless IOUs be accepted by that store. But now the vendor realizes that if he decides not to accept them, the customer will not have anywhere else to go, so it is the vendor (i.e., the one providing the real stuff) that can demand the terms.
China has clearly had that realization, and is beginning to prepare for this future by setting up an infrastructure so major trading partners and individuals can settle trade in Yuan, if they want to. Customers (especially BRIC members) that donât want to be exposed to the dollar will choose this now, but few others will.
This is a distinct phase: start making Yuan trading available; expand it, but it will remain âoptionalâ.
However, a second phase will no doubt follow where everyone buying from China will be forced to use the Yuan. As I pointed out in the company store analogy, it makes zero sense to use the customerâs currency, rather than the storeâs âhouse currencyâ. The customer is just as well able to sell its own currency (dollars) and buy the storeâs (Yuan) â provided, of course, the facilities to do so exist. Once they do, there will be little excuse not to use them.
There will be no practical limitation from buying Yuan and selling dollars to do so, and it will be compulsory as long as the world is buying $40-60B of Chinese goods, and returning nothing of value, on a monthly basis.
I canât imagine the onset of that phase will be any good for the dollar.
To look at it in a broader historical perspective, the phases can be seen as this:
China decides to industrialize and begin opening; needs the help of the US, the pre-eminent advanced Western client. Has virtually no choice but to accept dollars, but also no reason to worry about investing them back in the US. Pegs the Yuan low to provide a âdiscountâ for all goods purchased, as this is its only real selling point (no mature industry is present; it all has to be built from scratch).
(The US also has the slight problem that it has taken its currency off the gold standard, and so no one really âwantsâ the dollar. Who better to take it, no questions asked, than a new economic âclientâ state?)
China becomes well-developed (supply-side wise), and in fact, the largest nation with a full base of industry (to the USâs detriment). Still accepts dollars, in fact more than itâd like, as the US isnât making much in the way of goods anymore (the built-in discount for Chinese goods proved impossible to compete with). By the end of this phase, the US has thoroughly discredited its capital markets by allowing them to become rife with fraud and bubbles, and its government financing has become a huge Ponzi scheme.
China begins implementing Yuan settlement facilities, and some Yuan banking. We are in this phase now. Utilization of the facilities is optional, and only âUS haterzâ participate on a large scale, mostly out of principle. The dollar is still not âthreatenedâ in the near term, as there is still far too little âdepthâ in the Yuan international market.Also in this phase (discussed in my previous article), China is engaging in many off-market transactions to secure hard assets, without âsellingâ dollars in any meaningful volume (interesting question: why would they do this if they didnât expect the dollarâs value to fall hard in the not-too-distant future?)
Chinaâs realization that they are the vendor and can demand the manner of payment comes to full fruition, as Yuan settlement becomes mandatory. Yuan banking and large-scale Yuan markets have been set up for Chinese global trade in its totality.
An interesting question is the timing of phase 4. Phase 1 was about 20 years. Phase 2 lasted about 10. Will the time scale continue to compress? I suspect so. If we are 2 years into phase 3, then perhaps it will last 3 more years, for 5 total. That would mean in 2013/14, Yuan trade/capital facilities will reach their full âbreadthâ (though not depth). Then over about 2-3 years, the âswitch overâ would occur, and the world would be forced off the dollar, for China trade purposes at least (other purposes would follow due to the massive volume involved). That puts us at about 2016/17 for âdollar drop deadâ date.
So perhaps this is one more âfive year planâ â and one the US really needs to pay special attention to.
But as for timing, who really knows. What I am much more confident about is the course of the path.
""Anyone that fucks with our dollar or tries to affect its status as the world's reserve currency will be taken out through swift and decisive attacks."
"Needless to say, should the yuan be seen increasingly as a reserve currency, all of this, and virtually everything else is about to change.
The only question is whether or not the Yuan will cement its status at the top of the currency pyramid by allowing the backing of the currency with individual or a basket of commodities. If that were to happen, it would be the last nail in the coffin of the already terminally ill dollar."
you are a real flip flopper.
you also failed to attribute the post to people who wrote about it.
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China Embarks on âFive Year Planâ To Dump The Dollar
March 2nd, 2011 ⢠Related ⢠Filed Under
by Aaron Krowne
There has been a lot of well-meaning talk about the âthreatâ of China dumping the dollar, with precious little discussion of potential mechanisms.
A ZeroHedge piece that just came out got me thinking that China is actually well underway on its path to explicitly driving the stake into the heart of the dollar once and for all (incidentially, this makes a nice follow-on to my recent article about Chinaâs ability to âdumpâ the dollar based on hard asset holdings). It is clear now they really are going down a well-defined path here, that shows it is only a matter of time until we arrive at wholesale regime change for the dollar-dominated international trade system.
The main insight in the article is that China is taking new steps to provide for settlement of trade in Yuan instead of dollars:
The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes Americaâs claim to represent the key currency â with serious consequences for the U.S..
â¦
Previously, China also announced that bilateral trades with Russia and Malaysia will begin to be conducted with the yuan and the ruble and ringgit, respectively.
Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.
Over the past two years, they had begun doing this at first with select trading partners. Then, in the last few months they began establishing the general ability to do this via the normal banking system (as in, allowing for holding Yuan in banks outside of China).
Those who are saying that China is âstuckâ with the dollar are now apparently more sure of this than China is. If China is âstuckâ, it is certainly not acting like it. And heaven forbid they create exactly the outcome they want to bring about by resolutely taking those first few steps of a âjourney of 1000 milesâ, nay-sayers be damned.
When you think about it, it makes little sense that everyone (especially the Chinese) should by default hold dollars, when China and not the US is the âcompany storeâ the world goes to for most of its goods. Basically, the US has (till now) had the geopolitical influence to demand its own worthless IOUs be accepted by that store. But now the vendor realizes that if he decides not to accept them, the customer will not have anywhere else to go, so it is the vendor (i.e., the one providing the real stuff) that can demand the terms.
China has clearly had that realization, and is beginning to prepare for this future by setting up an infrastructure so major trading partners and individuals can settle trade in Yuan, if they want to. Customers (especially BRIC members) that donât want to be exposed to the dollar will choose this now, but few others will.
This is a distinct phase: start making Yuan trading available; expand it, but it will remain âoptionalâ.
However, a second phase will no doubt follow where everyone buying from China will be forced to use the Yuan. As I pointed out in the company store analogy, it makes zero sense to use the customerâs currency, rather than the storeâs âhouse currencyâ. The customer is just as well able to sell its own currency (dollars) and buy the storeâs (Yuan) â provided, of course, the facilities to do so exist. Once they do, there will be little excuse not to use them.
There will be no practical limitation from buying Yuan and selling dollars to do so, and it will be compulsory as long as the world is buying $40-60B of Chinese goods, and returning nothing of value, on a monthly basis.
I canât imagine the onset of that phase will be any good for the dollar.
To look at it in a broader historical perspective, the phases can be seen as this:
China decides to industrialize and begin opening; needs the help of the US, the pre-eminent advanced Western client. Has virtually no choice but to accept dollars, but also no reason to worry about investing them back in the US. Pegs the Yuan low to provide a âdiscountâ for all goods purchased, as this is its only real selling point (no mature industry is present; it all has to be built from scratch).
(The US also has the slight problem that it has taken its currency off the gold standard, and so no one really âwantsâ the dollar. Who better to take it, no questions asked, than a new economic âclientâ state?)
China becomes well-developed (supply-side wise), and in fact, the largest nation with a full base of industry (to the USâs detriment). Still accepts dollars, in fact more than itâd like, as the US isnât making much in the way of goods anymore (the built-in discount for Chinese goods proved impossible to compete with). By the end of this phase, the US has thoroughly discredited its capital markets by allowing them to become rife with fraud and bubbles, and its government financing has become a huge Ponzi scheme.
China begins implementing Yuan settlement facilities, and some Yuan banking. We are in this phase now. Utilization of the facilities is optional, and only âUS haterzâ participate on a large scale, mostly out of principle. The dollar is still not âthreatenedâ in the near term, as there is still far too little âdepthâ in the Yuan international market.Also in this phase (discussed in my previous article), China is engaging in many off-market transactions to secure hard assets, without âsellingâ dollars in any meaningful volume (interesting question: why would they do this if they didnât expect the dollarâs value to fall hard in the not-too-distant future?)
Chinaâs realization that they are the vendor and can demand the manner of payment comes to full fruition, as Yuan settlement becomes mandatory. Yuan banking and large-scale Yuan markets have been set up for Chinese global trade in its totality.
An interesting question is the timing of phase 4. Phase 1 was about 20 years. Phase 2 lasted about 10. Will the time scale continue to compress? I suspect so. If we are 2 years into phase 3, then perhaps it will last 3 more years, for 5 total. That would mean in 2013/14, Yuan trade/capital facilities will reach their full âbreadthâ (though not depth). Then over about 2-3 years, the âswitch overâ would occur, and the world would be forced off the dollar, for China trade purposes at least (other purposes would follow due to the massive volume involved). That puts us at about 2016/17 for âdollar drop deadâ date.
So perhaps this is one more âfive year planâ â and one the US really needs to pay special attention to.
But as for timing, who really knows. What I am much more confident about is the course of the path.